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Money Market in India

In today’s globalised economy, a well-regulated financial sector is critical. Financial innovation has aided in the growth of the economy. A financial institution is a company that offers financial services to its customers or members. Acting as financial intermediaries is probably the most important financial service provided by financial institutions. The government regulates most financial organizations heavily. For money market purposes, money does not just refer to bank notes, it also refers to a variety of assets that can be converted into cash quickly, such as short-term government securities, bills of exchange, and bankers’ acceptances. In an economy with risk averse savers and learning by loan, this article examines the true consequences of financial markets following financial deregulation. 

When the initial amount of worthwhile assets known by financial intuitions is insufficient, the transition from full financial repression to full financial liberalization may initially impede or even cause a recession. Lending activity, on the other hand, leads to the collection of information (learning by lending) about valuable assets. The goal of this article is to promote and support the use of financial markets in the economy as a whole.

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Money market refers to a segment of the financial market that trades financial securities with high liquidity and short maturities. The money market has evolved into a segment of the financial market for the purchase and sale of short-term assets, such as Treasury bills and commercial papers, with maturities of one year or less. Over-the-counter trading is a wholesale operation that takes place in the money market. Participants use it to borrow and lend money for a brief period of time.

Treasury bills, commercial papers, and certificates of deposit are examples of negotiable instruments in the money market. Many participants, including businesses, use it to raise capital by selling commercial papers on the open market. Because of the great liquidity of securities, the money market is regarded as a safe area to invest. Investors should be mindful of specific dangers, one of which is default on instruments such as commercial papers. The money market is made up of a number of financial institutions and dealers who are looking to borrow or lend assets. It’s the ideal place to put your money in liquid assets.

The money market is an uncontrolled and unstructured market, unlike the capital markets, which are structured in a formal manner. The money market offers a lower rate of return to investors, but it does offer a wide range of products. It is simpler to withdraw money from the money market.  Money markets differ from capital markets in that they are utilized for a shorter time period, whereas capital markets are used for longer periods of time.

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Meanwhile, a mortgage lender can mitigate the danger of a fallout by entering into an agreement with an agency or private conduit for operational delivery of the mortgage rather than required delivery. The mortgage originator effectively buys an option in this deal, giving the lender the right but not the duty to deliver the mortgage. The private conduit, on the other hand, charges a fee for permitting optional delivery. Money market funds are mutual funds with a low risk, liquid, and short-term investing objective. They are virtually always constituted of highly rated paper and are frequently supplied by corporations that have invested in other money market instruments. Municipal money funds, state-level debt funds, Treasury funds, and funds focused on the private commercial money market are all options for investors.

If a market is made up of extremely liquid, short-term assets, it is called a money market. Instrument maturities should not exceed one year and might be as short as one day. CDs, interbank loans, money market funds, Treasury bills (T-bills), repurchase agreements, commercial paper, and short-term securities loans are examples of this type of asset. Unlike a money market deposit account at a bank, money market funds are not federally insured, although the SEC regulates them under the Investment Company Act of 1940. Money market funds are prohibited from purchasing any investment that is not short-term, meaning that the money market fund’s principal and interest can be received in full within 397 days. Money market investments must also have a low credit risk and be highly rated or judged to be comparable to highly rated assets in terms of quality. 

Owing to the aforementioned description, what is money market in your view and context and what are the various kinds of investment one can mention in the money market investment. Talking briefly about them will give the society a clear picture regarding investing in money market and making progress in it accordingly.  

Author: Written by Ms. Nancy Srivastava, Assistant Professor of Law, she has expertise in Corporate Law and has written several articles in National and International Law Journal. 

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